In December, Statistics Canada reported that the household debt ratio for the third-quarter of 2015 had reached 163.7 per cent. The PBO said their calculation does not include pension entitlements as income, which is why their number differs.

The debt-to-income ratio could reach 174 per cent later this year, the PBO warned.

“Policymakers continue to express concern about the vulnerability of households to economic shocks, such as unexpected job loss or higher interest rates,” it said.

“What matters more for financial vulnerability is not so much the level of the debt relative to income, but rather the capacity of households to meet their debt service obligations.”

Financial vulnerability is usually measured by a household’s so-called debt service ratio (DSR), or the level of debt payments compared to disposable income.

“Household debt servicing capacity will become stretched further as interest rates rise to ‘normal’ levels over the next five years,“ the PBO said, adding that by the end of 2020, DSR — principal plus interest — is expected to rise to 15.9 per cent from 14.1 per cent of disposable income in the third quarter of 2015.

High levels of household debt have increased as a result of near-record low interest rates, which have come in response to the Bank of Canada’s cuts to its trendsetting lending level coming out of the 2008-09 recession in an effort to spur economic growth.

“Concerns about financial vulnerability are also particularly prominent in the current context given the recent economic weakness and the expectation that interest rates will rise in the coming years from their historically-low levels,” the PBO said.

This has also stoked a hot housing market, along with concerns that many Canadians could be getting in over their heads with cheap mortgages and face a financial crisis if the residential market begins to fall or when interest rates starts rising again.

“Consequently, it is useful to examine how households’ debt-servicing capacity may evolve as the Canadian economy recovers and interest rates return to ‘normal’ or neutral levels,” the PBO said.

The central bank’s key rate is now at 0.5 per cent after governor Stephen Poloz reduced the level twice last year in response to the collapse of oil prices, which threw the country into recession in the first half of 2015.

Poloz will announce the bank’s next rate decision on Wednesday. Many analysts believe there is a good chance of another 25-basis-point cut in the key lending level.

The new study comes amid growing concerns that Canada’s record-high housing market — particularly in Vancouver and Toronto — could experience a major correction if the economy slows or, more seriously, heads back into recession.

“We just wanted to show that there is a trajectory that is going up over time, and this is something that people need to pay attention to,” Mostafa Askari, assistant Parliamentary Budget Officer, said in an interview.

“It is hard to believe that in another the five years we won’t see an increase in interest rates,” he said.

“If interest rates don’t increase by then, that means the economy is going to be, actually, not very well.”

At the moment, Askari said the PBO has no plans to release future reports on household indebtedness.